Like I said, some good work on the Prag Cap blog … this ‘mystery buyer’ post, though, well it had me scratching my head. It seems to be strongly hinting at (well, actually clearly stating that there is) some big conspiracy, or conspiracies, viz (my bolding):

“Someone bigger than the rest of us wants this market higher and they’re doing it while most of us sleep…Perhaps I am making something out of nothing, but it just doesn’t add up if you ask me.”

In fairness, there is a hedge in there, and later the author does backpedal somewhat, saying in response to some of the comments:

“Let me be clear – I am not saying that this is some big conspiracy. I don’t know what’s going on. Maybe it’s nothing. All I know is it seems weird, I am describing it so come to your own conclusions. I honestly can’t explain it.”

While the author says the placing of large orders beyond the ask price has been “more than noticeable in the overnight sessions”, he provides a chart of the overnight trading for the evening of Wed. March 2, and the morning of Thurs. March 3, with six circled areas shown as examples of large orders shifting the price rapidly.

The author says he has spoken to “several hedge fund managers and other futures traders” who cannot explain the phenomenon. While I am not a hedge fund manager, just a self-described ‘guy sitting in front of his PC in his undies trading the ES’ (actually, I am wearing pants today, it is not always warm in Australia), I am going to have a go at providing an alternative explanation for at least some of these six occurrences, mostly using Occam’s Razor.

While I am going to have a look at each example individually, it is worth noting that the author generalizes somewhat, viz:

“You might not think it’s bizarre, but I can’t imagine, for the life of me, why you would enter an order at the ask price for 7,000 ES contracts at a price that is 3 handles higher than the current price. There is simply no explanation.”

Note that only two out of the six examples highlighted by the author register 7,000 or more ES contracts, the other four are for much, much smaller amounts, more on this later.

Here is the author’s chart, I have taken the liberty of labeling the six examples one through six:

Event “1”:
This is a price move through the 1306-ish level.
Is the volume large?

Here is a 1 minute chart where I have zoomed in so that the volume can be seen clearly. The volume for that 1 minute period is 795 contracts. Looks big compared to the surrounding volumes (and it is), but it isn’t 7,000. Or even close.

Why the price jump on big volume? Hindsight analysis is easy (and so often wrong), but is it possible that these may have been some stop loss buyers in the market, getting out of shorts above an obvious short-term resistance level? Could be? Not necessarily some ‘mystery buyer’, maybe one or a few short-covering trades?

Event “2”:
A move about 40 minutes later, chart below.
The notable volume is 564 contracts. In the context of the early overnight session that is a good size, but in the big picture, it is small.
I have added the ‘Volume Breakdown” bars to show the surge of buying in the volume figures:

Event “3”:
About 3 hours later. 799 contracts, chart below:

More short covering? I don’t know, but possible?

Event “4”:
OK, this is more like it. In the chart, the big volume bar is 7110 contracts:

That is huge in the overnight session. It is a good, significant size even during the cash session. The ‘mystery buyer’ jamming the price higher? Or, again, would a simpler explanation be some stops going off just above the cash session highs? I don’t know, but Mr. Occam might like that explanation? Chart below is a 4-minute bar, just changing the scale to get in the cash and overnight on one chart:

Event “5”:
Another relatively low volume move, wont bother with a chart for this one.

Event “6”:
Another big volume on the 1-minute chart, this time 9652 contracts:

This time, the price move is on the move through the earlier ‘overnight’ highs, which seems to be a logical explanation for some stops to go off. I may very well be wrong, it may be in response to some news, I don’t know, or it may well be the mystery buyer who wants the market higher.

———————-

Where Mr. Roche says this:

“The futures market is quiet enough that the market doesn’t “run away” from you. Getting a fair price in the overnight session is never really a concern. There is no news. The market is generally quiet.”

These are all generalizations. Yes, the market does sometimes ‘run away’ from you overnight (have a look at some of the charts above for evidence of this). Yes, there is ‘news’ from time-to-time (there is a bit of a commotion in the Middle East at present causing oil prices, and in turn other markets like the ES, to swing and they don’t necessarily wait for 9.30am Eastern Time to start their protests and worse). The market is generally quiet. Except when it isn’t.

To finish up (no pun intended), like I said, these moves may have a simple explanation. Or the conspiracy may well be right. Not going to argue it, just offer an alternative view, a simpler explanation.